VAT on the lease of yachts and pleasure boats

What is a leasing agreement of a pleasure boat?

A leasing agreement of a pleasure boat is an agreement between a lessor (the owner of a boat) and a lessee (the person who leases the boat) whereby the lessor contracts the use of the boat to the lessee in return for a consideration.

At the end of the lease period, the lessee may opt to purchase the boat at a percentage of the original price. The final purchase is not mandatory but an option which may be exercised at the end of the lease for a separate consideration.

How is the leasing agreement treated for VAT purposes?

For the purpose of VAT, the lease of the boat is a supply of services. Certain schemes apply whereby the lease of a yacht is taxed proportionally according to the use of the boat attributed within the territorial waters of the European Union (EU).

How is the use of boat within EU territorial waters calculated?

It is not easy to keep track of the of a pleasure boat in order to determine the period that the boat spends within the territorial waters of the EU and the time it spends outside the EU.

Guidelines have been set out to estimate the percentage of time spent within the EU based on the length of the boat and its means of propulsion (power or sailing).

VAT is applied on the established percentage of the lease which is deemed to be related to the use of the boat in EU territorial waters, eg. for VAT purposes in Malta a sailing boat over 24 meters in length is estimated to only spend 30% of its time in EU territorial waters, whereas a sailing boat between 20.01 and 24 meters in length is expected to spend 40% of its time within the EU.

This scheme is not available in all EU countries, and in some territories local VAT will be applied to 100% of the consideration regardless of the size or means of propulsion of the craft.

If the lessee exercises an option to purchase the boat after the end of the lease, a VAT paid certificate will be issued to the lessee provided that all VAT due has been paid.

Contact TMF to see how we can simplify tax compliance for you

For more information on VAT on the lease of yachts and pleasure boats please contact us: vat@tmf-group.com